{"id":10569,"date":"2018-06-18T10:00:25","date_gmt":"2018-06-18T14:00:25","guid":{"rendered":"http:\/\/lifeinsurance-orleans.ca\/Life-Insurance-Blog\/?p=10569"},"modified":"2018-08-14T14:27:55","modified_gmt":"2018-08-14T18:27:55","slug":"how-do-annuities-work-canada","status":"publish","type":"post","link":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/2018\/06\/18\/how-do-annuities-work-canada\/","title":{"rendered":"How Do Annuities Work In Canada?"},"content":{"rendered":"

An annuity is a contract with a life insurance company. You deposit a lump sum of money, and they agree to pay you a guaranteed income for a set period of time \u2014 or for the rest of your life. Annuities are most commonly used to generate retirement income.<\/p>\n

Annuity Basics<\/h2>\n

You can buy an annuity with money from a\u00a0RRSP, a\u00a0RRIF\u00a0or a non-registered account.<\/p>\n

The money is returned to you, with interest, in regular payments. You can choose to receive payments for a set number of years or for the rest of your life. You can receive monthly, quarterly, semi-annual or annual payments.<\/p>\n

How annuity payments work<\/h3>\n

Your annuity income is calculated when you buy the annuity. It is affected by a\u00a0number of factors\u00a0\u2014 the most important are interest rates and how long you\u2019re expected to live.<\/p>\n

Once you buy an\u00a0annuity<\/span><\/span><\/span>, you can\u2019t make any changes to it. Your regular payment amounts are locked in, and you can\u2019t change them for any reason.<\/p>\n

If you\u2019re over age 65 and do not have a company pension plan, you may be able to claim the\u00a0pension income tax credit<\/a>. This means you won\u2019t be taxed on the first $2,000 of annuity income each year.<\/p><\/blockquote>\n

2 types of annuities<\/h2>\n

1. Term-certain annuity<\/h3>\n

A\u00a0term<\/span><\/span><\/span>-certain annuity gives you a guaranteed regular income for a set number of years (the term). Term-certain annuities bought with money from an\u00a0RRSP<\/span><\/span><\/span>\u00a0or\u00a0RRIF<\/span><\/span><\/span>\u00a0must extend to age 90. If you die before the end of the term, your payments will continue to go to your\u00a0estate<\/span><\/span><\/span>.<\/p>\n

2. Life annuity<\/h3>\n

A\u00a0life annuity<\/span><\/span><\/span>\u00a0gives you a guaranteed regular income for life. Payments usually stop when you die, and no money will go to your estate. You may choose to add an option that allows your spouse,\u00a0beneficiary<\/span><\/span><\/span>\u00a0or estate to continue to receive your payments after your death.<\/p>\n

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GUARANTEED MINIMUM WITHDRAWAL BENEFIT (GMWB)<\/span><\/span><\/span>PRODUCTS<\/h5>\n

GMWB<\/strong><\/em> products are a type of annuity that provides guaranteed retirement income that can increase with\u00a0investment<\/span><\/span><\/span>\u00a0gains in your\u00a0portfolio<\/span><\/span><\/span>\u00a0and with certain bonus features.<\/p><\/blockquote>\n

3 ways to buy an annuity<\/h2>\n
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  1. In person from a\u00a0licensed<\/span><\/span><\/span>\u00a0insurance agent<\/span><\/span><\/span>\u00a0or\u00a0broker<\/span><\/span><\/span><\/li>\n
  2. Online or by phone from a broker or\u00a0insurance company<\/span><\/span><\/span><\/li>\n
  3. A financial advisor who is licensed to sell insurance<\/li>\n<\/ol>\n

    Some investment firms may also have a licensed broker on staff who can sell annuities.<\/p>\n

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    COMPARE ANNUITY RATES<\/h5>\n

    Once you buy an annuity, your regular payments are locked in. You can\u2019t change them for any reason. It\u2019s worth shopping around to\u00a0compare annuity rates.<\/p><\/blockquote>\n

    \"Annuities<\/a>How your annuity is protected<\/h2>\n

    If your annuity provider goes out of business, your annuity is insured up to certain limits. The first $2,000 per month of your annuity income is insured at 100%. Amounts above this are insured at 85% if the firm is a member of\u00a0Assuris<\/a>.<\/p>\n

    The insurance that covers your annuity is automatic. You don\u2019t have to do anything, and you don\u2019t have to pay anything extra to get it.<\/p>\n

    KEY POINTS<\/h4>\n

    You can choose to receive annuity income for life, or for a set number of years.<\/p>\n

    Once you buy an annuity, you can\u2019t get your savings out and you can\u2019t make any changes to it. Your regular payments are locked in.<\/p>\n

    If think an annuity is right for you or you want to compare annuity rates in Canada, please contact us<\/a>.<\/p>\n

     <\/p>\n